RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

9 Months Ended

Jun. 30, 2018

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

On May 10, 2018 and May 28, 2018, the Company’s Audit Committee, in consultation with the Board of Directors, concluded that the Company’s previously issued financial statements for the fiscal year ended September 30, 2017 and the three months ended December 30, 2017, respectively, could no longer be relied upon. This decision was reached after discussions with the Company’s senior management and outside advisers and as a result, we amended and restated our Form 10-K for fiscal 2017 and our Form 10-Q for the three months ended December 31, 2017.

The above was a result of the Company’s determination that, i) the warranty expense and warranty accrual accounts had been misstated for the quarter ended December 30, 2017 as a result of inaccurate and unsupported journal entries recorded due to management override of controls, and ii) the cost of sales and account payable accounts were misstated for the quarter ended December 30, 2017 as a result of falsified accounting records due to management override of controls. The management overrides of controls were identified during an internal investigation, which was concluded in May 2018, related to an unauthorized disbursement by a senior finance employee that was discovered after the end of the second fiscal quarter of 2018.

With respect to the journal entries impacting warranty expense and warranty accrual accounts, we determined that the manual journal entries initiated by this employee were made to correct the Company's failure to properly include labor costs in our warranty accrual, described below, lacked supporting documentation and were accounted for incorrectly. As a result, the Company identified overstatements of specific warranty accruals of $2.8 million and $15.9 million for fiscal 2016 and fiscal 2017, respectively.

In addition, the Company also identified adjustments that were required to be made to retained earnings, warranty expense and accrual accounts to correct the inappropriate exclusion of the estimated labor costs related to warranty repairs from its historical warranty accounting. While the latter adjustments are not deemed material, the Company has adjusted retained earnings, warranty expense and warranty accrual accounts as part of the restatement. As a result, the Company identified an understatement of warranty accruals relating to fiscal 2014 and prior years of $10.1 million in the aggregate, as the actual labor costs had instead been expensed in the periods incurred.

In addition to the understatement of warranty accruals relating to fiscal 2014 and in prior years, the warranty expense had also been misstated from fiscal 2015 through fiscal 2017, resulting in a cumulative understatement of income from operations of approximately $17.6 million. Of this understatement, approximately $14.8 million, $1.4 million, and $1.4 million was related to the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015, respectively. The labor costs relating to warranty expenses were also incorrectly reported in selling, general and administrative expense instead of cost of sales for the fiscal years ended September 30, 2017, October 1, 2016 and October 3, 2015. The Consolidated Balance Sheets were also misstated for the annual periods from 2015 through 2017.

The Company also identified a misstatement in its previously reported consolidated condensed financial statements for the quarterly period ended December 30, 2017, relating to a reduction in the warranty accrual of $5.2 million. This reduction resulted in an understatement of cost of sales and provision for warranty. In addition, the labor costs relating to warranty expenses of $2.4 million were also incorrectly reported in selling, general and administrative expense instead of cost of sales.

In connection with the internal investigation, the Company identified an unauthorized payment that had been initiated by a senior finance employee to an unapproved vendor in the second fiscal quarter of fiscal 2018. The payment was made based on falsified accounting records where two manual journal entries totaling $5.8 million in the aggregate had been recorded in accounts payable and cost of sales. Management determined this to be a misappropriation of the Company's assets. Accordingly, the reported consolidated condensed financial statements for the quarterly period ended December 30, 2017 were restated, because the originally reported accounts payable and cost of sales were each overstated by $5.8 million. The unauthorized payment was subsequently recovered in full.

In addition, we have made related tax expense adjustments for the above matters.

This Quarterly Report on Form 10-Q includes the restated fiscal 2017 comparable prior quarter and year to date periods.

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Unaudited



	Three Months Ended
	July 1, 2017
	As Previously Reported			Effect of Restatement			As Restated
Cost of sales	$	132,199		$	(2,305	)	$	129,894
Gross profit	111,698			2,305			114,003
Selling, general and administrative	39,047			(1,903		)	37,144
Operating expenses	100,234			(1,903		)	98,331
Income from operations	11,464			4,208			15,672
Income from operations before income taxes	12,951			4,208			17,159
Income tax (benefit) / expense	(17,867		)	210			(17,657		)
Net income	$	30,811		$	3,998		$	34,809

Net income per share:
Basic	$	0.43		$	0.06		$	0.49
Diluted	$	0.43		$	0.06		$	0.48



	Nine Months Ended
	July 1, 2017
	As Previously Reported			Effect of Restatement			As Restated
Cost of sales	$	322,842		$	(4,386	)	$	318,456
Gross profit	270,307			4,386			274,693
Selling, general and administrative	101,245			(5,498		)	95,747
Operating expenses	208,957			(5,498		)	203,459
Income from operations	61,350			9,884			71,234
Income from operations before income taxes	65,065			9,884			74,949
Income tax (benefit) / expense	(10,377		)	444			(9,933		)
Net income	$	75,435		$	9,440		$	84,875

Net income per share:
Basic	$	1.06		$	0.13		$	1.20
Diluted	$	1.05		$	0.13		$	1.18

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Unaudited



	Three Months Ended
	July 1, 2017
	As Previously Reported		Effect of Restatement		As Restated
Net income	$	30,811	$	3,998	$	34,809
Comprehensive income	$	34,161	$	3,998	$	38,159



	Nine Months Ended
	July 1, 2017
	As Previously Reported		Effect of Restatement		As Restated
Net income	$	75,435	$	9,440	$	84,875
Comprehensive income	$	75,961	$	9,440	$	85,401

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited



	Nine Months Ended
	July 1, 2017
	As Previously Reported			Effect of Restatement			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	75,435		$	9,440		84,875
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(10,526		)	444			(10,082		)
Accounts payable, accrued expenses and other current liabilities	83,234			(9,884		)	73,350
Net cash provided by operating activities	$	68,166		$	—		$	68,166